The Meaning of Compliance and an Era of Change for Banks, RIAs, and Fintechs

Key Takeaways

• Learn that the meaning of compliance involves an organization following the laws, regulations, and standards that govern its operations.
• Learn the different types of compliance in finance, how they are evolving, and what these compliance regulations mean to the day-to-day operations of banks, RIAs, and fintechs.
  

The meaning of compliance in the finance industry has evolved over the United States’ economic history. From the aftermath of the Great Depression to the 2008 financial crisis, events in the economy have inspired regulatory reforms, such as the Dodd-Frank Act. These reforms were enacted to ensure stability and trust in the U.S. financial system and have created many compliance responsibilities for companies in the industry.

In this article, we will explore what compliance means to banks, RIAs, and fintechs, the responsibilities for those companies, and how compliance in the finance industry is continuing to evolve during an era of change.

What is Compliance?

Let’s start with the basics: what exactly does compliance mean?

In broad terms, the definition of compliance involves an organization following the laws, regulations, and standards that govern its operations. The purpose of compliance is to ensure that a business remains ethical and operating within the legal boundaries set forth by government agencies.

However, compliance isn’t limited to what a government agency establishes and enforces. It can also mean the internal policies that a corporation has outlined for its operations and must hold itself accountable to. 

For a better understanding of the nuances to its meaning, here are three main facets of compliance:

Regulatory Compliance

Regulatory compliance is concerned with the adherence to the laws and regulations that government agencies, such as the Securities and Exchange Commission (SEC), established for organizations within certain industries.

However, for financial services, it’s not just government agencies that have control over the industry. The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees brokerage firms and their registered representatives. FINRA is authorized by the SEC, but is a private non-profit working independently to take on such responsibilities as investigating fraudulent activities against investors, maintaining the ethical standards of brokerages, and enforcing compliance with securities laws.

Corporate Compliance

Corporate compliance, while similar-sounding, should not be mistaken with regulatory compliance. This facet of compliance is not overseen by any government agency or authority like FINRA. Instead, corporate compliance is an organization’s own internal policies and procedures established to foster ethical behavior and corporate governance.

Corporate compliance could include the use of a “Code of Conduct” created by a company or a due diligence process conducted by a company with the help of a third party.

Operational Compliance

Operational compliance is the practical way an organization meets both regulatory and corporate compliance in its day-to-day operations. This could include security measures a company has in place or specific procedures employees must follow during their workday.

Understanding these three facets is important, because while there are differences between them, ultimately, they work in concert to ensure thorough compliance for an organization. 

For a clearer picture of the differences of regulatory, corporate, and operational compliance, let’s take a real-world example.

An example…

A fintech unicorn startup sells securities to “average” investors through its mobile app. Their app is prized by users for its informative and personalized recommendations for what stocks and ETFs to invest in.

That recommendation feature is powered by artificial intelligence and has no human involvement whatsoever. To prevent any manipulation of the feature or its data, the unicorn follows these guidelines and processes:

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• Corporate Compliance: The unicorn established a “Code of Conduct” that states no employee will attempt to breach, manipulate, or use any of the company’s app data for personal gain (beyond the use of the app like a typical user). In addition, the unicorn has engaged with a third party to monitor its servers for unusual activity.

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• Operational Compliance: Because the app personalizes each investment recommendation to each user, the data is encrypted and requires a user to access their account with two-factor authentication. Then for employees' day-to-day work, if someone–say a programmer–needs access to the AI aspects of the app, there are strict controls in place that limit who can access the data, when they can, for what duration, and for what reason.

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• Regulatory Compliance: Finally, the unicorn follows all regulations set forth by the SEC and FINRA regarding the prevention of market manipulation and insider trading. The unicorn is also well-prepared for any audits or reviews from regulators thanks to its rigorous procedures regarding corporate and operational compliance.

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It is important to know the differences between these facets of compliance and how they integrate into one comprehensive and cohesive framework. This ensures that an organization is compliant and that they uphold their reputation with customers. Failing to do so can create a domino effect: lax corporate policies will lead staff astray in their operations, both of which will ultimately lead to potential violations with regulators.

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Types of Compliance for Banks, RIAs, and Fintechs

Now that you understand the basic meaning of compliance, let’s take a closer look at the specific types of compliance rules and frameworks that govern banks, RIAs, and fintechs.

1. Regulatory Compliance

The meaning of regulatory compliance has been explained clearly above, but what exactly are some of the rules and what government acts put those regulations into place?

The Dodd-Frank Act

Formally known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” the “Dodd-Frank Act” was established following the financial crisis of 2008. It introduced reforms to the swaps market, which was not regulated prior to this act.

Investment Advisers Act of 1940

This act essentially established that investment advisors must be registered with the SEC and meet fiduciary standards. In 1996 and 2010, the act was amended so that only advisors with $100 million in assets under management or those advising a registered investment company must be listed with the SEC. All other investment advisors must register with the states in which they conduct business.

The Bank Secrecy Act

Originally established as “The Currency and Foreign Transactions Reporting Act of 1970,” this act requires banks to maintain detailed records and to report any suspicious transactions or activity that could be associated with money laundering, tax evasion, or any criminal activity.

The SEC’s Marketing Rule

Originally part of the “Investment Advisers Act of 1940,” the SEC’s Marketing Rule governed how RIAs could market their business in order to prevent fraudulent, deceptive, or manipulative advertisements. It was amended in recent years to modernize the marketing rules for investment advisors. 

The key elements of the SEC’s Marketing Rule today include:

• Prohibition of Misleading Statements: All advertisements by registered advisors and organizations must present information clearly and honestly.
• Performance Advertising Standards: If an advertisement or other marketing material includes past performance data, proper disclaimers must accompany that data.
• Testimonials and Endorsements: While previously prohibited by the SEC, RIAs can now use client testimonials in their marketing with strict conditions.
  

2. Financial Compliance

Complementing the “Bank Secrecy Act,” there are regulations in place that require banks, RIAs, and certain fintechs to play a role in Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) programs.

For instance, as of January 2026, RIAs will now be classified as financial institutions like banks, and will be required to have the following to prevent criminal activities:

1. Internal Policies and Procedures.
2. A Dedicated Compliance Officer.
3. Ongoing Employee Training.
4. Independent Testing.
5. Customer Due Diligence.

Whether this classification and these requirements will remain in effect during the new Trump Administration is still to be determined.

3. Data Privacy Compliance

In addition to the regulatory and financial compliance requirements for the financial sector, there are data privacy concerns and compliance regulations for the handling and protection of consumer information.

For instance, while not a federal regulation, the “California Consumer Privacy Act” is a strict state law that provides consumers in California with privacy protections while conducting business with an organization operating in the state. It sets the rules for how businesses must collect, handle, and protect customer information.

What Compliance Means to an Organization’s Day-to-Day Operations

With the definition of compliance understood and a review of some of the key regulations governing banks, RIAs, and fintechs, it's time to break down how an organization can turn regulatory mandates into actionable best practices that propel its everyday operations.

Develop Effective Internal Controls

Adhering to external regulations starts from within. Through effective internal controls and a company culture of integrity and accountability, an organization can set itself up for regulatory, financial, and data privacy compliance.

When developing effective internal controls, here are the components to consider:

• Clear Policies and Procedures: This is the foundation of any organization’s compliance framework. Clear policies and procedures assist employees with compliance expectations and establish the necessity for compliance. Organizations should document their corporate and operational compliance with clearly defined responsibilities, how staff can report violations, and how the organization will monitor compliance.

• Example: Taking from the earlier “fintech unicorn startup” example, the unicorn started with a clear “Code of Conduct” that outlined what the rules for when employees handled company data.

• Training and Communication: In addition to outlining policies and procedures, organizations must provide training for employees and facilitate open communication between departments. This ensures that staff know where their roles and responsibilities lie in compliance and it encourages them to report potential violations.

• Example: Not only did the unicorn establish a clear “Code of Conduct,” the company also trained employees on how to effectively request access to data when necessary, ensuring compliance with internal and external policies.

• Leadership Support: To build further on an organization’s culture of integrity and accountability, leadership is vital. When leaders display ethical behavior and express the importance of compliance, it inspires engagement from staff.

• Example: During an employee training program, the unicorn’s CEO was not merely in attendance, but conducted much of the presentation and expressed the importance of compliance throughout the seminar. The CEO also provided all staff members with her contact details if they had questions or concerns about compliance, especially in an emergency situation. Both actions demonstrated open communication and leadership support.
  

• Monitoring and Auditing Systems: Mechanisms for monitoring and auditing help verify compliance with corporate and regulatory standards. With proactive data analysis and reporting capabilities, monitors and audits can help detect areas within an organization that need improvement.

• Example: The unicorn employs its own systems for monitoring its compliance. It also employs third-parties to ensure compliance, such as the American Institute of CPAs (AICPA) that provides a System and Organization Controls (SOC) report documenting the unicorn’s adherence to regulations.

• Incident Management Procedures: Despite an organization’s best efforts, incidents can still occur. However, before facing a compliance breach, an organization should establish the exact protocols for investigating, correcting, and reporting compliance incidents to stakeholders and regulatory authorities. Such procedures aid in building a company’s culture of integrity, accountability, and transparency.

• Example: The unicorn was faced with an attempted breach of its data. However, because of the monitoring systems and a clear incident management procedure they had in place, they were able to isolate the incident, restrict all access to their app, and report the incident to stakeholders and appropriate authoritie.

• Continuous Improvement: Especially in this era of regulatory changes, maintaining compliance requires ongoing efforts from an organization to improve and adapt. Even deregulation requires companies to review or update their internal controls.

• Example: With the loosening of regulations for fintechs, the unicorn has new opportunities in selling investments to its customers. While capitalizing on this, the company must also adapt its procedures, especially to adhere to new state laws.

Conduct Thorough Risk Assessments

Avoiding compliance risks starts with assessing those potential risks. Banks, RIAs, and fintechs can use the insights from these assessments to build robust compliance policies and procedures.

Effective assessment methodologies include:

1. Qualitative Assessments: This method uses the experience and knowledge of an organization’s compliance officers, risk managers, and any other key stakeholders to provide insights into areas of compliance that need to be addressed. In this sort of assessment, there may not be any quantifiable data, and instead, it relies on discussions of the current and changing regulatory landscape.

• Example: The fintech unicorn hosts regular roundtables with key personnel to discuss how new deregulation initiatives will change their business and its compliance requirements.
  

2. Quantitative Assessments: This assessment method uses data to aid in decisions and to evaluate potential risk exposure.

• Example: The unicorn builds a model to pinpoint anomalies in trade pricing or order routing on their platform that could be potential breaches of SEC regulations.

3. Scenario Analysis: This methodology uses scenarios to gauge how a risk could affect an organization. It’s essentially a fire drill, allowing risk management and compliance teams to evaluate what would happen to their organization if they faced an emergency or sudden change.

• Example: The unicorn anticipates deregulation in the financial markets in the next few years. This provides new growth opportunities for their company, however, their compliance team must consider what will happen if each state enacts new laws to compensate for the federal deregulation. How can the company’s policies and processes handle such fluctuations and unique requirements?

4. Regular Documentation and Review: Documentation is key for banks, RIAs, and fintechs. It allows organizations to look at previous compliance risks and how their company handled them. The knowledge garnered from the past can be applied to managing new, similar compliance risks.

• Example: The unicorn kept careful compliance documentation through its various stages of growth. With deregulation on the horizon, the unicorn assesses how they handled compliance requirements when they moved from only operating in the state of New York to operating across the country. The state of California for one, presented unique compliance challenges for their company. Knowing how they overcame those obstacles will assist them in the future.

Implement Comprehensive Customer Due Diligence Measures

Customer Due Diligence (CDD) mitigates the risks for financial firms relating to money laundering and terrorist financing. It is essential to have comprehensive CDD measures in place and can be enacted with best practices such as:

• Identifying and Verifying Customers: This measure implements a robust process requiring customers to verify their identity with important documents.

• Example: The fintech unicorn requires all customers to verify their identity using biometrics, confirming a current address using their government-issued ID, and requiring their bank account to be based in the United States.

• Risk-Based Approach: This tailors CDD requirements to high-risk clients, enhancing measures.

• Example: The unicorn bolsters its due diligence measures for customers on its platform with significant investments in cryptocurrency.

• Ongoing Monitoring: An organization implements a system that detects suspicious activity and transactions.

• Example: The unicorn has a system in place that flags any users on its platform who are transferring and receiving large amounts of crypto, exceeding what a normal trader would transact in the same time frame.

Why Many Advocate for Deregulation: The Impact and Challenges of Strict Compliance for Banks, RIAs, and Fintechs

Regulatory compliance is important in order to protect consumers. However, it does present unintended consequences for banks, RIAs, and fintechs. Many in the financial sector advocate for less restrictive regulations to promote innovation, reduce unnecessary costs, and boost the competitive nature of the market. 

One advocate, Michele Alt of the Klaros Group, writes in an open letter to the Trump Administration that the, “complex and burdensome bank charter application [has] kept many fintech companies - companies on which Americans have increasingly come to rely for their financial services - outside the banking agencies’ direct supervisory purview.” Alt goes on to say that these regulations are also, “freezing out new banks - both traditional and fintech” and is discouraging innovation and competition in the banking industry. Based on Alt’s insights, not only are the results of strict regulations stifling companies, but they are counterintuitive, creating more potential risks for consumers. 

While there are many unique challenges to strict compliance regulations, here are common ones faced by banks, RIAs, and fintechs:

Hiring Compliance Professionals

The need to hire professionals in order to adhere to financial compliance regulations is particularly burdensome for independent RIAs and financial startups. Such businesses lack the capital to invest in a specialized team dedicated to the complexities of today’s compliance landscape. However, without a compliance team, these businesses leave themselves vulnerable to regulatory violations and fines.

Staff Training

An organization’s staff must remain informed about new compliance standards and how to navigate them. This requires companies to dedicate significant time and resources into developing and implementing training programs on a regular basis. With more regulatory standards and the evolving meaning of compliance, organizations need to continuously update their training program. Those that fail to do so will risk violations and reduced operational efficiency, simply because staff won’t know the proper compliance procedures.

Technology Investments

In addition to hiring and training, companies must upgrade their technology, not when they  find it necessary, but when regulations mandate it. This can strain budgets and divert funds from other, more-critical and cost-effective business initiatives.

Disruption to Business Models

Stricter regulations can have such an impact on organizations that they may need to change their entire business model. 

For instance, imagine an independent RIA who prides herself in delivering approachable wealth management. She doesn’t want a large office with numerous staff members and instead enjoys working one-on-one with her clients. Now that she’ll be classified as a financial institution under the “Bank Secrecy Act,” she will have to hire a dedicated compliance officer and potentially other employees to keep her business compliant. Her business operations will have to change, as will her business philosophy–her exceptional dedication to clients.

Resource Allocation and Increased Operational Costs

Stricter compliance regulations demand significant human and financial resources. Reallocating capital or hiring personnel can disrupt an organization’s ongoing operations.

For a large corporation, they may be able to weather such demands, though it’ll still cost millions of dollars. However, for a startup, such costs could prevent them from growing or even entering the market.

An Era of Change in the Financial Industry and its Impact on the Meaning of Compliance

According to the corporate law firm Skadden, with the new Trump Administration, “Banks and fintechs are entering the most favorable regulatory environment in years.” Meanwhile, industry insights from Stinson expect the administration, “to adopt a tech-forward stance, promoting innovation across financial services.”

An era of change is here. However, the deregulatory decisions of the Trump Administration do not render compliance meaningless. Skadden predicts that regulatory authorities will, “continue ordinary-course examination and enforcement in areas of bipartisan interest, such as anti-money laundering and sanctions, cybersecurity and data protection.” Similarly, Stinson believes, “states are likely to continue, or even intensify, their own enforcement activities.” And the firm stresses that this means, “Companies should maintain robust compliance efforts and consider state-level regulatory actions as part of their overall strategy.”

From the aftermath of the Great Depression to the financial regulations of the 1970s and today, the meaning of compliance has changed and is continuing to evolve. Don’t leave your organization’s compliance review to guesswork in this era of change. Stay compliant using Luthor, the AI-powered marketing compliance review platform for banks, RIAs, and fintechs.

FAQs About the Meaning of Compliance

What does compliance mean to banks, RIAs, and fintechs?

In the simplest terms, compliance means adhering to the laws, regulations, and policies that dictate how banks, RIAs, and fintechs can operate.

In a broader sense, compliance can encompass not just regulatory mandates, but the corporate and operational compliance policies that financial institutions establish for themselves.

The main purpose of compliance is to maintain the trust and integrity of the financial system.

What are the key types of compliance relevant to banks, RIAs, and fintechs?

There are three key types of compliance relevant to banks, RIAs, and fintechs:

1. Regulatory Compliance: This focuses on the regulations set forth by the SEC and adhering to those requirements.
2. Financial Compliance: This focuses on Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) requirements.
3. Data Privacy Compliance: This focuses on the collection and protection of customers’ data, such as the requirements of the “California Consumer Privacy Act.”

Why is implementing robust compliance procedures beneficial for banks, RIAs, and fintechs?

Compliance procedures can help banks, RIAs, and fintechs reduce the risk of regulatory violations, build customer trust, and ensure that operations are within the boundaries of legal frameworks.

What are some common challenges faced by banks, RIAs, and fintechs when adapting to new regulations?

The common challenges that banks, RIAs, and fintechs must overcome when adapting to new compliance regulations include:

• Increased operational costs.
• Hiring of compliance personnel.
• Comprehensive staff training.
• Reallocation of resources.

What roles do compliance professionals fulfill within organizations?

Compliance officers and analysts ensure that an organization adheres to regulations and is managing risks. These professionals may do the following to ensure an organization’s compliance:

• Establish and improve internal compliance policies.
• Conduct risk assessments.
• Develop and conduct employee training programs regarding compliance.

How do stricter compliance regulations impact operational practices in banks, RIAs, and fintechs?

Stricter compliance regulations, while intended to protect consumers, can have adverse effects on banks, RIAs, and fintechs. Most notably, strict regulations can require an organization to reallocate resources away from their core operations or it can cause a potential disruption to their business model. This can prevent banks, RIAs, and fintechs from innovating, growing, and remaining competitive.

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